Impact of New Arbitration Guidelines

Source-This post on Impact of New Arbitration Guidelines has been created based on the article “Why new guidelines for arbitration and mediation could be damaging” published in “The Indian Express” on 1 August 2024.

UPSC Syllabus-GS Paper-2- Dispute Redressal Mechanisms and Institutions.

Context– The government introduced new guidelines for arbitration and mediation in public procurement contracts. Although the guidelines promote mediation, they indicate a move away from using arbitration in government projects.

The 2015 amendments aimed to make India a top international arbitration center by reducing court delays. However, the recent shift away from arbitration seems to reverse this progress.

What are the problems with arbitration?

1) Speed of resolution– The recent reversal of reforms comes from worries that cases are being resolved too quickly.

2) Quality of arbitrators-The perceptions that poor-quality or corrupt arbitrators are to blame misses the true issues. The real issues are inadequate legal representation and flawed case facts, rather than the arbitrators themselves.

What will be the impact of these new guidelines?

1) Business Ecosystem-It will negatively impact private litigants, India’s “Ease of Doing Business” ranking and Foreign Direct Investment (FDI).

2) Legal System- It will add pressure to already overloaded courts, causing delays, increased court interference, and lengthier appeals. As the government will often be involved in disputes, cases are likely to reach the Supreme Court frequently.

3) Shift to Foreign Arbitration -Large domestic companies will choose foreign arbitration, leaving only smaller disputes to be handled in India.

Read More- Alternative dispute resolution

What are the likely positive outcomes?

1) Increased Commercial litigation-This shift will foster strong legal principles in damages, indemnities, discovery, and trial practices, expand Indian law on damages, and encourage innovative use of tort law.

2) Demand for skilled trial lawyers- There will be a need for lawyers skilled in litigation, damages, and cross-examination, which will enhance the overall legal system.

What should be the way forward?

A) Addressing Arbitration Issues– The real issue with arbitration should be addressed by improving legal representation and case details, rather than blaming the arbitrators. Enhancing training and accreditation can resolve these problems without abandoning arbitration.

B) Commercial Courts –Substantial investments and a commitment to improving commercial courts should be made for a successful transition.

Question for practice

Critically analyze the impact of new guidelines on arbitration?